Just thought those of you who don't have this situation might enjoy feeling good about where you live.

Phone tax surprises many at register

Sale price doesn’t factor in Mass.

By Michael B. Farrell | GLOBE STAFF JANUARY 12, 2012

When Shari Worthington upgraded to an iPhone 4S, she expected to pay more for the latest technology from Apple. But the hefty sales tax tacked on to her purchase came as a surprise.

“Why am I paying $40 tax on a $149 phone?’’ Worthington, a Worcester advertising executive, said she asked the Verizon Wireless sales clerk in Shrewsbury.

The answer: Because state tax regulations treat cellphones differently than other consumer products.

In Massachusetts, a phone that is deeply discounted when it’s tied to a cellular service contract is supposed to be taxed at the product’s actual value, which is typically a lot higher. And as the list price of some phones has soared to as high as $850, more people are noticing, and complaining about, the added cost.

State lawmakers have introduced bills to eliminate the policy, and the Retailers Association of Massachusetts is calling for cellphone buyers to be taxed on what they are charged at the register.

Only Massachusetts and Rhode Island base cellphone sales tax on the higher price of the phone.

“In reality, people get these phones tied into a contract, and that’s the price of the phone,’’ said Bill Rennie, vice president of the retail association. “The easiest thing to do is to treat these transactions like any other item.’’

In Worthington’s case, she was charged the state’s 6.25 percent sales tax on her iPhone’s actual value, $650. “That just drove me absolutely nuts,’’ she said. “If I go in to buy a washing machine that’s on sale, I don’t have to pay sales tax on the full price.’’

The state issued its first policy on taxing cellphone sales in 1993. The thinking then was that since phones were essentially being treated as giveaways by companies to promote lucrative long-term service contracts, they were undertaxed.

Robert Bliss, the Revenue Department’s director of communications, compared a discounted cellphone to a used car that is sold for $1. The buyer, he said, would still have to pay sales tax based on the vehicle’s real value, not the bargain basement price.

State policies vary widely when it comes to cellphone taxes. But only Massachusetts and Rhode Island base cellphone sales tax on the higher price of the phone, not on the lower bundled cost, and tax wireless service throughout the contract, according to an analysis from KSE Partners, a Montpelier consulting firm that specializes in government affairs.

Last spring, the Massachusetts Department of Revenue clarified the cellphone tax rule after it found many wireless phone sellers - from major carriers to small independent stores - were not collecting full-price sales taxes, as required. The state does not calculate how much money it collects through the tax, Bliss said, but he estimated it totals millions of dollars annually.

“It’s not a new tax. It’s not some fresh revenue gambit,’’ he said of the directive. “It’s just trying to refine existing policy.’’

That notice came too late for Tim Blakeman, who owns Wireless Zone stores in Plymouth and Kingston. After an audit two years ago, the state ordered him to pay $23,000 in back taxes on discounted phones he had sold. Blakeman said he had to borrow money from relatives and close a third store in Buzzards Bay to pay. Nobody had told him about the cellphone sales tax, he said.

“If I had known, that’s what I would have been doing from the beginning,’’ Blakeman said.

He now collects the higher tax, but his customers are not happy.

“We’ve actually been yelled and screamed at and they think we’re trying to rip them off,’’ Blakeman said.

As part of its recent clarification of the 1993 regulations, the state told wireless sellers they can cover some of the sales tax that would otherwise be paid by customers, Bliss said.

Sprint does so, charging tax based on the price consumers pay for phones, not on what it pays the manufacturer, said John Taylor, a Sprint spokesman. AT&T, T-Mobile, and Verizon Wireless charge their customers the entire sales tax.

Mike Murphy, a Verizon Wireless spokesman, said the Massachusetts tax code puts retailers at a distinct disadvantage when they are trying to compete with those in nearby states.

“Verizon Wireless believes a ‘sales tax’ should apply to the sale price, as required in 48 states,’’ he said in a statement.

Republican state representatives Daniel Webster, of Pembroke, and Jay Barrows, of Mansfield, have separately introduced bills to treat the cellphone sales as any other consumer transaction.

But Scott Mackey, a tax analyst at KSE Partners, said the state might be reluctant to give up the tax, especially as the prices of smartphones climb and budgets remain stressed.

“With the iPhone,’’ he said, “now we are talking about a serious amount of money.’’

Are they also charging the same sales tax on the contract? If so, wouldn't that be charging the tax twice? In essence with a contract you are still paying the full price for phone, it's just rolled up as part of the monthly service fees. If you are paying a sales tax on the monthly fees, then you are paying sales tax on the full price... it is just spread out over the contract.

__________________My friends, love is better than anger. Hope is better than fear. Optimism is better than despair. So let us be loving, hopeful and optimistic. And we'll change the world. - Jack Layton

Are they also charging the same sales tax on the contract? If so, wouldn't that be charging the tax twice? In essence with a contract you are still paying the full price for phone, it's just rolled up as part of the monthly service fees. If you are paying a sales tax on the monthly fees, then you are paying sales tax on the full price... it is just spread out over the contract.

No, one is tax on the sale of the device and the other is tax on a service provided.

__________________

Forget about putting Christ back in Christmas. We need to put Christ back into Christianity.

No, one is tax on the sale of the device and the other is tax on a service provided.

Same rate? Or two different rates?

I don't know why I care, actually .... a spot of insomnia, I'm up way too early idly posting to threads I that don't affect me. sigh. Never mind...

__________________My friends, love is better than anger. Hope is better than fear. Optimism is better than despair. So let us be loving, hopeful and optimistic. And we'll change the world. - Jack Layton

Old news. Pops up every time a new iPhone is released. CA and RI (IIRC) also charge tax on the full retail price.

CA does charge full sales tax on the pre-rebate price of a phone, so the iPhone is taxed on $500/600, but a phone that started at $75 and was cut to $50 during a sale would be taxed at $50.

Massachusetts is doing it pretty backwards, because almost every phone starts in the hundreds of dollars and goes on sale repeatedly over its life. It's collecting taxes on things people didn't really pay for.

Yup. As everyone has said already, California charges for the full price of the phone and it doesn't matter if it will be discounted. I know it's overestimating but, I just add 10% of the price for whichever I phone I will get. I live in LA County, our taxes went up then went down. It's either 8.5% or 8.75% - I have no idea. Oh well, that's life.

^^ As those two have said. Cali charges full price tax, reguardless of carrier discounts. Not that it really matters... since there is nothing you can do about it (well... technically by Cali State law, lol).

I have been told by employees at several different Radio Shack stores in Mass that if I buy an iPhone upgrade from them, they only charge me the sales tax on the $199 or whatever the upgrade price is. The apple store charges sales tax on the full retail price, as noted elsewhere.

I have been told by employees at several different Radio Shack stores in Mass that if I buy an iPhone upgrade from them, they only charge me the sales tax on the $199 or whatever the upgrade price is. The apple store charges sales tax on the full retail price, as noted elsewhere.

How can Radio Shack do this if nobody else can?

They may still be remitting the full sales tax to the state, and absorbing the cost of tax not paid by the customer. It's a good way to attract customers. Most people attach more emotional importance to saving their sales tax than the actual dollars, imho. That is to say... if a company advertised a 6% off sale, or advertised a "save the tax" sale (if sales tax was 6%) more people would take up the "save the sales tax sale" because it 'feels' better. I would even venture that they would still go for the "save the sales tax sale" even if it offered a smaller savings. Not paying sales tax is a powerful motive.

__________________My friends, love is better than anger. Hope is better than fear. Optimism is better than despair. So let us be loving, hopeful and optimistic. And we'll change the world. - Jack Layton

Hi,
I as most, would say they feel violated by the State of Taxachussetts. I kept my cool at the counter, mostly because I knew the sales person was not at fault. I'll tell you right now what they are doing should be considered illegal. Taxing you for something you did not purchase. Money exchanged hands of a product. This discount was earned for completing a contract. I will travel to another state the next time. Sure it will cost me a little gas but less than the extra tax paid on the phone. When I'm done with my purchase, I'll fill up my car too.

Thanks for the article, wish I knew about it sooner

Leon from Northborough, Ma

Sent from my iPad

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Hi,
I as most, would say they feel violated by the State of Taxachussetts. I kept my cool at the counter, mostly because I knew the sales person was not at fault. I'll tell you right now what they are doing should be considered illegal. Taxing you for something you did not purchase. Money exchanged hands of a product. This discount was earned for completing a contract. I will travel to another state the next time. Sure it will cost me a little gas but less than the extra tax paid on the phone. When I'm done with my purchase, I'll fill up my car too.

I went to an ATT store, and exactly the same thing happened. I opted not to upgrade my phone given that they offered for my iPhone about the same as that tax for the newer iPhone 5 at full list price. I was thoroughly pissed off though the guy at the store was up front about it and also thought it was pretty low that some states are doing this.

If anything, cell phones should be considered like old phone lines - more a necessity than a sin-tax-able item. I don't own a home phone just my cell.

Hi,
I as most, would say they feel violated by the State of Taxachussetts. I kept my cool at the counter, mostly because I knew the sales person was not at fault. I'll tell you right now what they are doing should be considered illegal. Taxing you for something you did not purchase. Money exchanged hands of a product. This discount was earned for completing a contract. I will travel to another state the next time. Sure it will cost me a little gas but less than the extra tax paid on the phone. When I'm done with my purchase, I'll fill up my car too.

Thanks for the article, wish I knew about it sooner

Leon from Northborough, Ma

Sent from my iPad

Make sure you buy gas in the other state too. Wouldn't want Taxachussetts getting any gasoline tax money.

I look forward to your complaining about crappy roads when you go to buy your next iPhone.

__________________

Forget about putting Christ back in Christmas. We need to put Christ back into Christianity.

Hi,
I as most, would say they feel violated by the State of Taxachussetts. I kept my cool at the counter, mostly because I knew the sales person was not at fault. I'll tell you right now what they are doing should be considered illegal. Taxing you for something you did not purchase. Money exchanged hands of a product. This discount was earned for completing a contract. I will travel to another state the next time. Sure it will cost me a little gas but less than the extra tax paid on the phone. When I'm done with my purchase, I'll fill up my car too.

Thanks for the article, wish I knew about it sooner

Leon from Northborough, Ma

Sent from my iPad

----------

Hi,
I as most, would say they feel violated by the State of Taxachussetts. I kept my cool at the counter, mostly because I knew the sales person was not at fault. I'll tell you right now what they are doing should be considered illegal. Taxing you for something you did not purchase. Money exchanged hands of a product. This discount was earned for completing a contract. I will travel to another state the next time. Sure it will cost me a little gas but less than the extra tax paid on the phone. When I'm done with my purchase, I'll fill up my car too.

Thanks for the article, wish I knew about it sooner

Leon from Northborough, Ma

Sent from my iPad

You're supposed to pay use tax to Massachusetts on anything bought out of the state, so unless you plan on reporting your phone purchase on your tax return, congratulations, you just confessed to tax evasion.